Minimum wage should be increased

by Mike Gorse
Class of 2001

Since 1938, U.S. law has required that all workers, with a few exceptions, be paid a minimum wage. Our minimum wage was initially $0.25/hour and has been periodically increased as inflation drove up prices, peaking in real dollars in 1968. Increases in the minimum wage are always surrounded with controversy, since many economists argue that they cause inflation and cause businesses to hire fewer workers, hurting the very people they are intended to help. However, studies that empirically measure the effects of minimum wage increases show mixed results, often showing improved conditions for minimum wage workers with no evidence of job loss.

In 1997, a successful Oregon ballot initiative called for a three-step increase in the state's minimum wage, from $5.00/hour in 1996 to $6.50/hour in 1999. A study by the Center on Budget and Policy Priorities analyzed the effects of this increase, finding that it affected the earnings of both minimum wage workers and workers making slightly above the minimum wage. According to the study, the average starting wage of welfare recipients who found work increased by 5.4 percent, reversing a trend of decline after adjusting for inflation. Furthermore, the study found that, although job growth in Oregon slowed in 1997, the slowdown was less pronounced in the retail sector than in the state as a whole. This would suggest that the minimum wage increase was not the cause of the slowdown, since retail jobs, many of which pay at rates near the minimum wage, would otherwise be likely to be particularly affected by a wage hike. Princeton researchers found similar results when studying the effects of a 1992 minimum wage increase in New Jersey on the fast food industry. The researchers compared job growth in New Jersey with growth in eastern Pennsylvania, where the minimum wage was not increased, finding no difference. (In 1998, in response to criticisms of the study's methodology, the researchers re-did their study using a fresh set of data from the Bureau of Labor Statistics and found the same results.)

It is important to realize that the minimum wage is still below 1968 levels in real dollars. Clinton's proposal to increase the minimum wage by $1 over two years would make it fairly close to the 1982 level in real dollars. Any job loss attributed to the 1996 federal minimum wage increase may well have been temporary, and the economy has remained strong with declining unemployment and low inflation. Further increasing the minimum wage could further help to narrow the wage gap (which has widened over the past two decades) and put more money in the hands of low-wage workers.